Malaysia’s GDP growth up on exports

Malaysia’s economic growth unexpectedly accelerated to the fastest pace in six quarters on surging exports and domestic demand, adding scope for the central bank to increase interest rates further.

Published: 15/08/2014 at 12:00 PM

Writer: Bloomberg News

Gross domestic product rose 6.4% in the three months through June from a year earlier, after climbing 6.2% in the first quarter, the central bank said in a statement in Kuala Lumpur on Friday. The median in a Bloomberg News survey of 25 economists was for a 5.8% increase.

Malaysia was the first in Southeast Asia to raise its benchmark rate in 2014 as investment, private consumption and overseas orders for the nation’s goods sustained growth. Inflation was the highest since 2011 earlier this year after Prime Minister Najib Razak cut subsidies on fuel and sugar to contain fiscal spending.

“Given robust growth dynamics, lingering inflation pressures and a preemptive move to guard against the build-up of financial imbalances, we think Bank Negara may pursue another” rate increase in September, Julia Goh, an economist at CIMB Group Holdings Bhd., said before the announcement.

The ringgit rose 0.3% against the dollar as of 11.55am (10.55am Thailand time). It has strengthened about 3.3% this year, the second-best performer among 11 major Asian currencies tracked by Bloomberg. The FTSE Bursa Malaysia KLCI Index of shares was little changed on Friday.

GDP expansion this year will probably exceed the central bank’s forecast range of 4.5% to 5.5%, Governor Zeti Akhtar Aziz said Friday. The government will announce a new growth forecast during its budget, she said. The economy grew 4.7% last year.

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The government is spurring investment by making it simpler for companies to operate in the country, with Malaysia moving up six ranks in the World Bank’s latest index of ease of doing business. Najib wants to increase the share of tourism, health care and other services to 65% of GDP by 2020 from 55.2% in 2013.

“Leading indicators suggest that private sector activity will remain as the key driver of growth,” the central bank said in a statement Friday. “Exports will continue to benefit from the recovery in the advanced economies and from regional demand. Going forward, the Malaysian economy is expected to remain on a steady growth path.”